ANZ SECURITIES AND OPTING OUT OF SECURITIES FRAUD CLASS ACTIONS
Securities Section
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Late-stage opt-outs by
investors are relatively
infrequent, but ANZ might
invite experimentation with
earlier, protective opt-outs.
T
he most likely class
member to “opt-out”
of a securities fraud
class is an institutional
investor. The size of its investment
loss helps the institutional investor
absorb the risks and costs of going
it alone. If an institutional investor
is going to opt out, it usually does
so at settlement, when the investor
would file a separate action or
attempt a separate peace.
But a recent Supreme Court
case, California Public Employees’
Retirement System v. ANZ Securities,
Inc., 137 S. Ct. 2042 (2017), may
force institutional investors and
others to opt out sooner.
The circuits have disagreed
whether a pending securities fraud
class action suit tolls the time
to file an opt-out action. Under
American Pipe tolling, named
after a 1974 Supreme Court case,
American Pipe & Construction Co.
v. Utah, 414 U.S. 538, 550 (1974),
the filing of a class action can
suspend the applicable statute of
limitations for all class members.
In June 2017, the ANZ Securities
Court held that American Pipe’s
equitable tolling did not extend
the time for filing opt-out claims
from a class action under Section
11 of the Securities Act of 1933,
which is subject to a three-year
statute of repose. 137 S. Ct. at 2055.
An investor who opts out of a
long-running class action — at
settlement, for example — would
be barred from proceeding with
a new case if she files it more
than three years after the securities
issuance.
This holding might encourage
“protective,” earlier opt-outs, by
which the investor seeks to preserve
her ability either to join or opt out
of any later class settlement. This,
in turn, could increase the cost and
complexity of securities litigation.
Perhaps the impact is
overstated. The Second, Sixth, and
Eleventh Circuits have already
rejected this sort of tolling. Police
& Fire Ret. Sys. of Detroit v.
IndyMac MBS, Inc., 721 F.3d 95,
101 (2d Cir 2013); Stein v. Regions
Morgan Keegan Select High Income
Fund, 821 F.3d 780, 794 – 95 (6th
Cir. 2016); Dusek v. JPMorgan
Chase & Co., 832 F.3d 1243, 1249
(11th Cir. 2016). And no parade
of horribles has followed. As such,
the ANZ Securities majority gave
this short shrift: “Petitioner has
not offered evidence of any recent
influx of protective filings in the
Second Circuit, where the rule
affirmed here has been the law
since 2013.” ANZ Sec., 137 S. Ct.
at 2054.
But the consequences in those
circuits have hardly had time to
take root and bloom. Securities
Act class actions are few, and they
can take years to litigate. Although
the ANZ Securities majority did not
address it, one amicus brief stated
that in the long-running Petrobras
securities-fraud action in the
Second Circuit, approximately
500 institutional investors filed or
joined individual actions.
The ANZ dissent noted the
impact on the least-sophisticated
investors, who may lack the
resources to monitor the class
proceedings or to opt out: “Absent a
protective claim . . . those members
stand to forfeit their constitutionally
shielded right to opt out of the class
and thereby control the prosecution
of their own claims for damages.”
Id. at 2057 (Ginsburg, J., dissenting).
Late-stage opt-outs by investors
are relatively infrequent, but the
Supreme Court’s recent decision
in ANZ Securities
might invite
experimentation
with earlier,
protective
opt-outs.
Author: John E.
(Jack) Clabby –
Carlton Fields
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